KBRA downgrades HomeStreet

KBRA said it downgraded HomeStreet, Inc.’s senior unsecured debt rating to BBB- from BBB and the subordinated debt rating to BB+ from BBB-.

The downgrade of HomeStreet’s long-term ratings is primarily due to the material deterioration in the company’s earnings and capital profile over the past year (ROA of 0.22% and CET1 ratio of 8.4% for 1Q23). HMST’s profitability has decreased considerably given the maintenance of a liability-sensitive balance sheet that was exacerbated by the significant growth in multifamily loans over the last two years (+$2.4 billion) that not only are generally fixed rate for the first five to seven years, but also required a higher level of noncore funding utilization that together has resulted in meaningful NIM compression following the Fed’s interest rate hikes,” the agency said in a statement.

KBRA noted it considers HomeStreet’s credit risk lower than similarly rated peers because most of its loan portfolio is concentrated in multifamily loans that have not suffered credit losses since it started originating them decades ago.

The outlook is stable.

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